nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒02‒07
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Contracts as a Barrier to Entry: Impact of Buyer's Asymmetric Information and Bargaining Power By David Martimort; Jérôme Pouyet; Thomas Trégouët
  2. A Preference-Based Model of Platform Competition By Paolo Bertoletti
  3. Market for Information and Selling Mechanisms By David Bounie; Antoine Dubus; Patrick Waelbroeck
  4. Myopic Oligopoly Pricing By Iwan Bos; Marco A. Marini; Riccardo D. Saulle
  5. Price Heterogeneity as a source of Heterogenous Demand By John F. -H. Quah; Gerelt Tserenjigmid
  6. Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach By Kei Kawai; Jun Nakabayashi; Juan M. Ortner; Sylvain Chassang
  7. Robust Algorithmic Collusion By Nicolas Eschenbaum; Filip Melgren; Philipp Zahn
  8. Impact of Mergers and Acquisitions on Innovation: Evidence from a Panel of Indian Pharmaceutical Firms By Basant, Rakesh; Jaiswal, Neha
  9. Competition, prices and quality of residential aged care in Australia By Ou Yang; Jongsay Yong; Yuting Zhang; Anthony Scott
  10. Nursing Home Competition, Prices and Quality: A Review and Some Lessons for Australia By Jongsay Yong; Ou Yang; Anthony Scott
  11. Using Word of Mouth Data from Social Media to Identify Asymmetric Competition in Food Retailing By Jaeger, Lena-Christin; Höhler Julia
  12. Consumer Guilt and Sustainable Choice: Environmental Impact of Durable Goods Innovation By K. Sudhir; Ramesh Shankar; Yuan Jin
  13. Low Interest Rates and Banks' Interest Margins: Does Deposit Market Concentration Matter? By Nimrod Segev; Sigal Ribon; Michael Kahn; Jakob De Haan

  1. By: David Martimort (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: An incumbent seller contracts with a buyer and faces the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent's service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity given to all buyers.
    Keywords: excessive entry,foreclosure,exclusionary behavior,incomplete information
    Date: 2021–12
  2. By: Paolo Bertoletti
    Abstract: We study platform competition by modelling the preferences of a “"representative buyer" ”over the services platforms provide and the commodities they intermediate. This captures an intensive margin of buyers’' participation which is neglected by the canonical setting, and delivers a welfare measure of platform quality. Assuming that sellers offer a large variety of commodities under monopolistic competition and free entry, in contrast to previous results we find that in a duopoly setting strategically chosen commissions (whose value depends on sellers’ expenditure share and demand elasticity) actually worsen buyers' ’welfare, which improves if platforms set commissions in advance of sellers' ’entry.
    Keywords: platform competition, market intermediation, exchange commissions
    JEL: D11 L13 L41 L51
    Date: 2022–01
  3. By: David Bounie (i3, CNRS, Télécom Paris, Institut Polytechnique de Paris); Antoine Dubus (Department of Management, Technology and Economics, ETH Zurich Leonhardstrasse 21 Switzerland – 8092 Zurich, Switzerland); Patrick Waelbroeck (i3, CNRS, Télécom Paris, Institut Polytechnique de Paris)
    Abstract: A monopolist data intermediary collects consumer information that it strategically sells to competing firms in a product market for price discrimination purposes. The intermediary charges a price of information and chooses the optimal partition that maximizes the willingness to pay of firms for information. Different selling mechanisms are compared: list prices, sequential bargaining, and auctions. The intermediary optimally sells information through auctions, whereas consumer surplus is maximized with sequential bargaining and list prices. We discuss the regulatory implications of our results.
    Keywords: Selling mechanisms; Market for information; Data intermediaries; Competition policy; Regulation of digital markets
    Date: 2022–02
  4. By: Iwan Bos (Maastricht University); Marco A. Marini (Sapienza University of Rome); Riccardo D. Saulle (University of Padova)
    Abstract: This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set solution concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and oers a pure-strategy solution when there is none in Nash terms. It particularly provides a behavioral rationale for di erent pricing patterns, including Edgeworth price cycles and states of hypercompetition with supply shortages. We also analyze the impact of a change in firm size distribution. A merger among the biggest firms may lead to more price dispersion as it increases the maximum and decreases the minimum myopically stable price.
    Keywords: Bounded Rationality, Capacity Constraints, Mergers, Myopic Stable Set, Oligopoly Pricing, Supply Shortages
    JEL: C72 D43 L13
    Date: 2021–12
  5. By: John F. -H. Quah; Gerelt Tserenjigmid
    Abstract: We explore heterogenous prices as a source of heterogenous or stochastic demand. Heterogenous prices could arise either because there is actual price variation among consumers or because consumers (mis)perceive prices differently. Our main result says the following: if heterogenous prices have a distribution among consumers that is (in a sense) stable across observations, then a model where consumers have a common utility function but face heterogenous prices has precisely the same implications as a heterogenous preference/random utility model (with no price heterogeneity).
    Date: 2022–01
  6. By: Kei Kawai; Jun Nakabayashi; Juan M. Ortner; Sylvain Chassang
    Abstract: Cartels participating in procurement auctions frequently use bid rotation or prioritize incumbents to allocate contracts. However, establishing a link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such patterns. We show that by focusing on auctions in which the winning and losing bids are very close, it is possible to distinguish allocation patterns reflecting cost differences across firms from patterns reflecting non-competitive environments. We apply our tests to two datasets: the sample of Ohio milk auctions studied in Porter and Zona (1999), and a sample of municipal procurement auctions from Japan.
    JEL: L41
    Date: 2022–01
  7. By: Nicolas Eschenbaum; Filip Melgren; Philipp Zahn
    Abstract: This paper develops a formal framework to assess policies of learning algorithms in economic games. We investigate whether reinforcement-learning agents with collusive pricing policies can successfully extrapolate collusive behavior from training to the market. We find that in testing environments collusion consistently breaks down. Instead, we observe static Nash play. We then show that restricting algorithms' strategy space can make algorithmic collusion robust, because it limits overfitting to rival strategies. Our findings suggest that policy-makers should focus on firm behavior aimed at coordinating algorithm design in order to make collusive policies robust.
    Date: 2022–01
  8. By: Basant, Rakesh; Jaiswal, Neha
    Abstract: Based on the literature, the paper identifies processes that get initiated post an M&A event and affect the acquiring firm’s innovation efforts. We apply panel fixed effects estimation techniques to analyze the individual impact of mergers and acquisitions on R&D intensity of acquiring firms using data for 217 publically listed Indian pharmaceutical firms (both acquirers and non-acquirers) during 1999-2018. The study finds that acquisitions rather than mergers provide impetus to R&D in the acquiring firms. This suggests that these two combinations – mergers and acquisitions - do not unleash the same type of innovation activity related processes in the acquiring firm. Results also show that when mergers or acquisitions are combined with purchase of assets, they have a positive impact on R&D intensity. Purchase of assets when combined with M&A seem to provide access to relevant complementary assets that makes R&D activity profitable for the acquirer post the merger or acquisition event. Possibly, firms view purchase of assets as a strategy that is complementary to M&A strategies for enhancing innovation. The paper shows that impact of M&A on R&D takes time and it is useful to analyze the impact of mergers and acquisitions separately, rather than combining the two together.
    Date: 2022–01–25
  9. By: Ou Yang (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Jongsay Yong (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Yuting Zhang (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Anthony Scott (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: We quantify competition in Australia's residential aged care sector and study how competition is associated with quality of care and prices in the sector. Competition is defined three ways: the number of competitors within a 10 km radius of a facility; the distance (in km) to the third closest competing facility; and Herfindahl-Hirschman index based on market share of facilities within 10 km. We further examine whether quality and price differ by ownership types (government owned, for profit, and not for profit), after controlling for competition. We find that more competition is not associated with better quality or lower prices. Governmentowned facilities, in comparison to for-profit and not-for-profit facilities, are found to provide higher quality in some domains but not in others, yet tend to charge lower prices than other ownership types. The results indicate the possibility of market failures in aged care. Two key sources of market failures, the lack of public reporting of quality of care and price transparency, should be addressed as policy priorities before competition can work in residential aged care markets.
    Keywords: Nursing home competition, Aged care quality, Aged care prices, Australia
    JEL: I11 I18 L80
    Date: 2021–01
  10. By: Jongsay Yong (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Ou Yang (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Anthony Scott (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: In recent years, with the aim of containing cost pressure and improving efficiency, many countries have begun to introduce market mechanisms into the aged care sector. Under the right conditions, competition can spur providers to compete by cutting costs, offering better prices and higher quality of services. However, in aged care, market failures can be severe. Information about prices and quality may not be readily available and search costs can be high. This study undertakes a scoping review of the literature on competition in the nursing home sector, with an emphasis on research examining how competition affects prices and quality of care. Online databases were used to identify studies in English language published between 1988–2020. A total of 44 publications covering nine countries are included in this review. On the relationship between competition and quality, the literature offers conflicting evidence. Some studies find greater competition leading to higher quality, while others find the opposite effect. Institutional features such as the presence of binding supply restrictions on nursing homes and public release of information on quality appear to be important considerations. On the price effect of competition, most studies find that greater competition tends to result in lower prices, although the effect is small. The literature offers several lessons for Australia, including whether increasing subsidies can result in higher quality and the role of public reporting of quality ratings in fostering competition. (This is an abstract only. Contact Jongsay Yong ( if you would like to receive more information on the full paper).
    Keywords: Competition; Quality; Prices; Residential aged care; Nursing homes.
    JEL: I11 I18 L80
    Date: 2020–06
  11. By: Jaeger, Lena-Christin; Höhler Julia
    Keywords: Consumer/Household Economics, Marketing
    Date: 2020–09–18
  12. By: K. Sudhir (Cowles Foundation, Yale University; Cowles Foundation, Yale University); Ramesh Shankar (University of Connecticut); Yuan Jin (Texas Tech University)
    Abstract: The paper develops a modeling framework to study how sustainability interventions impact consumer adoption of durable goods innovation, firm profit and environmental outcomes in equilibrium. Our two period model with forward looking consumers and a monopoly firm introducing an innovation in the second period accommodates three key features: (1) it builds on the psychology literature linking reactive and anticipatory guilt to consumers’ environmental sensitivity on initial purchase and upgrade decisions; (2) it disentangles environmental harm over the product life into that arising from product use and dumping at replacement; and (3) it clarifies how a taxonomy of innovations (function, fashion and use-efficiency) differ in how they provide value and cause environmental harm during use and dumping. Given how guilt impacts environmental sensitivity, the model allows for owners upgrading a product to be more environmentally sensitive than first time buyers; this makes dumping harm and in-use harm from products not fungible. We find that with fashion and function innovations, increasing consumer sensitivity to environmental harm can surprisingly result in increased environmental harm. Further, when consumers are very sensitive to environmental harm, firms will not inform (pre-announce to) consumers about the impending arrival of use-efficiency innovation; to minimize environmental harm, a sustainability advocate needs to inform consumers. Thus, contrary to conventional wisdom, consumer environmental sensitivity does not always substitute for the role of sustainability advocates. Our results clarify how to design win-win policies for firms and the environment; and when advocates have complementary/ adversarial roles relative to firms to achieve sustainability goals.
    Keywords: Durable goods, Planned Obsolescence, Sustainability, Innovation, Environmental Costs
    Date: 2022–01
  13. By: Nimrod Segev (Bank of Israel); Sigal Ribon (Bank of Israel); Michael Kahn (Bank of Israel); Jakob De Haan (University of Groningen and CESifo)
    Abstract: Using a sample of 7,919 banks from 30 OECD countries over 1995â2019, we examine the impact of low interest rates on banks' net interest margins. Our results confirm a positive relationship between interest rates and interest margins, which is stronger in a low interest rate environment. In more concentrated markets, however, interest margins are less sensitive to the level of interest rates as income and expense interest rate sensitivities closely match. But our results also suggest that the effect of market concentration on the link between interest ratesand interest margins is weaker when interest rates approach zero.
    Date: 2021–10

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